From a day to day trade management perspective, it means the
contract (for a given instrument) you have owned for the longest is the one closed out first when you place an order in the opposite direction.
This is the default position of trading software and required by industry regulation.
Eg:
Position 1: Bought GBP/USD 100,000 units at 1.6200 entered on June 1
Position 2: Bought GBP/USD 100,000 units at 1.6300 entered on June 2
Position 3: Bought GBP/USD 100,000 units at 1.6400 entered on June 3
Total Position: 300,000 units long in GBP/USD
Now let’s say GBP/USD moved back to 1.6300 on June 4, and you wanted to close 100,000 units of your overall position, more specifically the second position opened at 1.6300. Your broker’s platform won’t allow you.
Under FIFO, the broker has to sell back the first 100,000 units that you purchased at 1.6200 because it was opened first. If you do decide to sell back 100,000 units, you’d end up with Positions 2 and 3 in your trading account.
Source for example only:
https://www.babypips.com/blogs/espipionage/faq_fifo_in_the_forex_market.html
See also:
https://www.investopedia.com/terms/n/nfa-compliance-rule-2-43b.asp
But FIFO (First In First Out) is also used by the exchanges (in some cases) to determine in what priority orders on the book are filled ie are orders placed first (the oldest) filled first, or are all orders on the book filled using a Pro-Rata algorithm.
See here:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/Matching+Algorithms
This article explains the exchange operations well:
https://www.advantagefutures.com/is-pro-rata-an-accident-waiting-to-happen/
Further reading re the Exchange's use of FIFO:
https://quantitativebrokers.com/wp-content/uploads/2013/06/match-20130603.pdf
